Stagflation Dilemma

by Paul Hoffmeister, Portfolio Manager and Chief Economist

The FOMC met on July 29-30 and voted in favor of keeping the fed funds target range at 4.25-4.5%, making the fifth consecutive pause in interest rate adjustments. The Fed hasn’t cut rates at all this year, which is in sharp contrast to the 100 basis points in cuts between September and December of last year. At one point last fall, financial markets, indicated by December 2025 fed funds futures, were expecting almost a 3% funds rate by the end of this year.

The Fed’s reluctance to reduce interest rates has clearly sparked the ire of President Trump, who is demanding fast and aggressive rate cuts. The President has nicknamed Chairman Powell “Too Late” and called him a “stubborn moron” and “numbskull”. In his view, the funds rate is at least 3 percentage points too high. The President’s criticism arguably reflects many voters, as recent Gallup surveys show that only 37% of Americans have confidence in the Fed Chairman. [1]

Based on the flat yield curve today and assuming that the long end of the curve would stay at current levels, an immediate cut of 300 basis points to the funds rate would make Fed policy as aggressively dovish as it was after the tech bubble burst (2001-2002) and the Global Financial Crisis (2009-2010). 

Powell, for his part, is in an exceedingly difficult position, and the Fed is facing an almost impossible dilemma. Both sides of the interest rate debate seemingly have a compelling argument. 

On the one hand, doves argue some variation of the following: the flat Treasury curve and the 2-year Treasury yield (almost 60bps lower than fed funds) are screaming that the Fed is too tight; the labor market is softening (Sahm Rule has been tripped, slowdown in job growth, rising unemployment claims, declining job openings); manufacturing has been contracting for most of the last 3 years (<50 ISM Manufacturing Index); and the services sector is on the verge of contraction (50.1 ISM Services Index for July). 

On the other hand, rate hawks point to the strength in the equity markets, corporate profits, gold prices, and household net worth; along with high consumer prices and the official unemployment rate of 4.2%.

In our view, the ISM Services PMI data for July sums up the debate and dilemma. This relatively real-time data basically shows an emergent stagflation of rising inflation and weakening employment. Last month, the survey’s employment index fell to 46.4%, the fourth contraction in five months and lowest level since March. Meanwhile, the prices paid index jumped to 69.9%, the highest level since October 2022. With the service sector making up approximately three-quarters of the economy, the softening job growth and intensifying cost pressures are a worrisome trend. 

Complicating matters, tariffs may be worsening the inflation outlook. A recent Federal Reserve Board working paper concluded that the China tariffs increased core-goods PCE prices by nearly 0.3 percentage points. Boston Fed research concluded that the President’s plan to impose 10% tariffs on China and 25% tariffs on Mexico and Canada would increase core PCE by 0.8 percentage points. And, Chicago Fed President Austan Goolsbee recently suggested that tariffs could raise inflation between 0.5 and 0.8 points, depending on how much those costs pass through businesses.

Muddying waters even more may be Fed credibility. It’s possible that some Fed members are inclined to cut interest rates but are concerned at the same time of being seen as caving to political pressure. Or, conversely, they could be reluctant to cut rates because of supposedly missing or failing to extinguish the inflation of 2022, where year-over-year core PCE jumped to 5.5% from 1% in 2020. These are psychological factors that may be almost impossible to accurately assess.

Fed policymaking might be an unenviable job these days. Unfortunately, these are the countless variables that factor into monetary policy decision-making when policymakers operate within a discretionary rather than rules-based system. 

Notwithstanding the nature of the modern monetary regime, today’s policy debate and growing stagflation pressures, the policy bias at the Fed today is increasingly dovish. Not only did two FOMC members favor cutting rates in the last meeting, but President Trump has nominated his CEA Chairman Stephen Miran, a known dove, to the Fed Board of Governors. This has helped to push the December 2025 fed funds futures to expecting almost two quarter-point rate cuts by year-end. 

If anything, Fed policy is ever so slowly moving in the direction of what market-based indicators such as the yield curve and 2-year Treasury are apparently demanding. And so, monetary policy will likely continue to evolve gradually unless extremes emerge in the future, whether it be economic or inflationary, demand more rapid action.

__________

[1] “Public Views of the Fed Chair Are Polarized as Trump Mulls His Firing”, by Ruth Igielnik, July 16, 2025, New York Times.

Paul Hoffmeister is Chief Economist and Portfolio Manager at Camelot Portfolios, managing partner of Camelot Event-Driven Advisors (CEDA), and co-portfolio manager of the Camelot Event-Driven Fund (EVDIX • EVDAX).

WANT MORE WAYS TO STAY UP-TO-DATE
ON ALL THE EVENT-DRIVEN NEWS?

FOLLOW US ON LINKEDIN!

VISIT OUR FRIENDS AT EVENT-DRIVEN.BLOG

Camelot Event-Driven Advisors LLC | 1700 Woodlands Drive | Maumee, OH 43537 // B682 

Disclosures:
•       Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended by the adviser), will be profitable or equal to past performance levels.
•       This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client.  These materials are not intended as any form of substitute for individualized investment advice.  The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own.  Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors.  Camelot Event Driven Advisors can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.
•       Any charts, graphs, or visual aids presented herein are intended to demonstrate concepts more fully discussed in the text of this brochure, and which cannot be fully explained without the assistance of a professional from Camelot Portfolios LLC.  Readers should not in any way interpret these visual aids as a device with which to ascertain investment decisions or an investment approach.  Only your professional adviser should interpret this information.
•       Some information in this presentation is gleaned from third party sources, and while believed to be reliable, is not independently verified.
•       Camelot Event-Driven Advisors, LLC, is registered as an investment adviser with the United States Securities and Exchange Commission. Registration as an investment adviser does not imply any certain degree of skill or training. Camelot Event-Driven Advisors, LLC’s disclosure document, ADV Firm Brochure is available at http://adviserinfo.sec.gov/firm/summary/291798

Copyright © 2025 Camelot Event-Driven Advisors, All rights reserved.

Looking For Trade Deals

by Paul Hoffmeister, Portfolio Manager and Chief Economist

The S&P 500 is up nearly 25% since April 9 when President Trump announced in his now-famous Truth Social post that it was a “…great time to buy!!!” Less than four hours later, the President revealed a 90-day pause on the increased reciprocal tariffs that he unveiled the previous week while leaving in place a 10% baseline tariff. Of course, stocks sold off during the first week of April after those country-specific tariffs (some as high as 50%) were announced. The about-face after one week calmed panicked markets and set the stage for the recent, massive rally.

Some could easily forget that in his April 9 post the President imposed a 125% tariff on Chinese imports into the United States, while other countries were given the temporary reprieve. But concerns about US-China trade relations were eased on May 12 after negotiations in Geneva led the United States and China to reduce for 90 days their import tariffs to 30% and 10%, respectively, while further negotiations were held. That news helped catalyze the second leg higher in the recent stock market recovery. Helping matters further, on June 11, the President posted on Truth Social: "Our deal with China is done, subject to final approval from President Xi and me."

Equity markets seem to be very pleased these days, as the S&P 500 makes record highs. Not only have significant tariffs been avoided, but the President signed into law major tax reform on July 4. 

As we explained last month, the latest budget bill is imperfect from a supply-side, pro-growth perspective as it needed to be scored budget-neutral within reconciliation rules and compromises were required between pro-growth and austerian wings of the GOP. Notwithstanding, the bill has important growth-stimulative components, such as permanently lower tax thresholds (which were passed in 2018 and scheduled to expire in 2026) and 100% bonus deprecation rules. 

If any pro-growthers want another chance at reducing taxes on businesses and capital (such as lower corporate and capital gains taxes), then they’ll need to make a stronger case to the country and win stronger electoral mandates in the future. This could be similarly said for austerians, such as Elon Musk, who want to see more done to keep federal spending under control. For his part, Musk has filed documents with the FEC to form a new political party.  

The near-term market focus will likely now shift to the expiring tariff-related deadlines. The initial 90-day pause is set to expire on July 9, and the China-specific pause expires on August 14. 

It’s unlikely that tariffs will be reinstituted as early as July 9. On Sunday, Treasury Secretary Bessent explained on CNN that letters were being sent to trading partners outlining the Administration’s trade and tariff expectations, and that country-specific tariffs will revert on August 1 to their April 2 levels if deals weren’t reached. Effectively, there seems to be a three-week extension during what seem to be final deal-making stages. Commerce Secretary Lutnick added on Sunday that "…the president is setting the rates and the deals right now."

As for a US-China trade deal, Chinese officials seemingly downplayed notions of a “done deal” in June. At the time, a spokesperson for China’s Ministry of Commerce characterized the outcome of those meetings as a “framework” to implement the general agreement reached in May. The agreement includes access to magnets and rare earth minerals for the United States, and chip design software and jet engine components for China. According to the Wall Street Journal, both countries are thus far easing some of their respective export controls. 

In general, the trade-related news appears constructive but not yet definitive. Arguably, the absence, for now, of sky-high tariffs and retaliatory tariff walls being erected around the world have relieved equity markets and allowed them to set new highs. 

Just as importantly, there seems to be a growing perception that the White House wants to avoid another market panic like the first week of April.  After all, there was the policy about-face on April 9; the notable absence of public comments from the Administration’s leading trade hawks, and more market-friendly tariff messaging from the likes of Secretaries Bessent and Lutnick; as well as the latest tariff deadline extension to August 1. 

This strongly suggests that the Administration is working to smooth the transition to a new, comprehensive trade regime. But the market is waiting on a lot of new trade deals. Thus far, the United States has reached agreements with the UK and Vietnam. Big deals yet to be finalized include China, the European Union, Mexico, Canada, Japan, South Korea and India. 

Given the stock market’s recent reaction function, deal completions should be favorable and create more follow-through to the upside. The near-term outlook appears constructive. But a lot of optimism seems to be priced into risk assets today and a host of deals are yet to be reached, which could create short-term choppiness.

Paul Hoffmeister is Chief Economist and Portfolio Manager at Camelot Portfolios, managing partner of Camelot Event-Driven Advisors (CEDA), and co-portfolio manager of the Camelot Event-Driven Fund (EVDIX • EVDAX).

WANT MORE WAYS TO STAY UP-TO-DATE
ON ALL THE EVENT-DRIVEN NEWS?
FOLLOW US ON LINKEDIN!

VISIT OUR FRIENDS AT EVENT-DRIVEN.BLOG

Camelot Event-Driven Advisors LLC | 1700 Woodlands Drive | Maumee, OH 43537 // B665

Disclosures:
•       Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended by the adviser), will be profitable or equal to past performance levels.
•       This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client.  These materials are not intended as any form of substitute for individualized investment advice.  The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own.  Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors.  Camelot Event Driven Advisors can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.
•       Any charts, graphs, or visual aids presented herein are intended to demonstrate concepts more fully discussed in the text of this brochure, and which cannot be fully explained without the assistance of a professional from Camelot Portfolios LLC.  Readers should not in any way interpret these visual aids as a device with which to ascertain investment decisions or an investment approach.  Only your professional adviser should interpret this information.
•       Some information in this presentation is gleaned from third party sources, and while believed to be reliable, is not independently verified.
•       Camelot Event-Driven Advisors, LLC, is registered as an investment adviser with the United States Securities and Exchange Commission. Registration as an investment adviser does not imply any certain degree of skill or training. Camelot Event-Driven Advisors, LLC’s disclosure document, ADV Firm Brochure is available at http://adviserinfo.sec.gov/firm/summary/291798

Copyright © 2025 Camelot Event-Driven Advisors, All rights reserved.

President Trump’s Market Calls

by Paul Hoffmeister, Portfolio Manager and Chief Economist

The theme that we’ve been emphasizing this year is that policy volatility is likely to lead to market volatility, and last month was a prime or even historic example. Of course, on April 2nd otherwise known as “Liberation Day”, President Trump announced a series of tariff measures, including universal 10% tariffs on all imports (except Canada and Mexico) and additional country-specific tariffs against 60 countries. The S&P 500 and Nasdaq Composite subsequently fell nearly -12% and -13%, respectively, between April 2 and April 9. The equity market panic evoked memories of Smoot Hawley and the 1929-1930 stock market selloff. 

Then, on April 9 at 9:37am ET, President Trump posted on Truth Social, “THIS IS A GREAT TIME TO BUY!!! DJT”. This marked almost the exact bottom in stocks, and since then the major US equity indices have reversed much of their post-April 2nd declines. The S&P 500, for its part, posted its longest winning streak in 20 years. The shift in narrative from the White House during the last month is obvious, shifting from signaling that “tariffs are going up” to “trade deals are going to be worked out”. 

The first meaningful trade deal announced so far has been between the United States and the UK. According to Bloomberg, the deal will fast track American goods through UK customs, reduce barriers on agricultural, chemical, energy and industrial exports, and increase market access for American beef, ethanol and other products. For the UK, the deal will enable UK manufacturers to annually export a hundred thousand automobiles to the United States at a 10% tariff instead of the 27.5% tariff that Trump recently threatened. According to President Trump, the deal will establish a baseline 10% tariff (from 3.4%), reduce UK tariffs from 5.1% to 1.8%, generate expected tariff revenues for the US of $6 billion, and boost certain US exports by $5 billion. 

This deal may also create a framework for deals with other countries, with the US clearly looking to maintain a universal 10% tariff on imports with few exceptions and indeed create an external revenue source, as well as reduce foreign trade barriers (by reducing foreign tariffs and increasing market access). While during the first week of April it looked like the US was going to play hardball and trade negotiations were going to be prolonged and contentious, markets seem to be much more positive about the outlook for trade negotiations. Another positive development in recent weeks is the fact that there have not been significant retaliations from trading partners.

Notwithstanding, this is only the first major trade deal; and holding all other variables constant, additional deals will likely be needed to substantiate the market’s current optimism and propel equities to pre-Liberation Day levels. The big trade deal would of course be with China. On Thursday, President Trump said that he wouldn’t be surprised if such deal were reached. If that happened and US-China tensions eased, equity indices could test their 2025 highs. 

Notably, President Trump said on Thursday May 8, “You better go buy stock now. Let me tell you. This country will be like a rocket ship that goes straight up.” Is the President making another bold market call like he did on April 9? 

At the moment, the economy is “holding up” reasonably well. Even though real GDP contracted -0.3% in Q1 quarter-over-quarter, this was mainly caused by a jump in imports (seemingly due to front-running the Trump tariffs) and slightly less government spending. Meanwhile, the labor market continues to be resilient. Even more, S&P 500 earnings for Q1 have increased 12.8% compared to the first quarter of 2024, according to John Butters of FactSet. [1] This creates a good footing for the current equity environment.

Of course, along with trade negotiations vis a vis China and other countries, there are other major macro variables in play, especially related to taxes, geopolitics and the Fed, which will in large part determine whether the President’s recent comments turn out to be accurate. Congress is expected to finalize the Trump tax cut extensions by the July 4th recess; the geopolitical outlook is uncertain and requires clarity; and the Fed appears to be staying firm with current interest rate levels until the tariff outlook is clearer. Policy volatility remains, and so does the potential for more market volatility, both to the upside and downside. 

[1] Source: Investors Business Daily, S&P 500: 5 Stocks Absolutely Crush Analysts' Profit Forecasts | Investor's Business Daily

Paul Hoffmeister is Chief Economist and Portfolio Manager at Camelot Portfolios, managing partner of Camelot Event-Driven Advisors (CEDA), and co-portfolio manager of the Camelot Event-Driven Fund (EVDIX • EVDAX).

CLICK BELOW TO REGISTER FOR CEDA'S MONTHLY EVENT-DRIVEN CALL!

REGISTER HERE

WANT MORE WAYS TO STAY UP-TO-DATE ON ALL THE EVENT-DRIVEN NEWS?

FOLLOW US ON LINKEDIN!

VISIT OUR FRIENDS AT EVENT-DRIVEN.BLOG

Camelot Event-Driven Advisors LLC | 1700 Woodlands Drive | Maumee, OH 43537 // B661

Disclosures:
•       Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended by the adviser), will be profitable or equal to past performance levels.
•       This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client.  These materials are not intended as any form of substitute for individualized investment advice.  The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own.  Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors.  Camelot Event Driven Advisors can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.
•       Any charts, graphs, or visual aids presented herein are intended to demonstrate concepts more fully discussed in the text of this brochure, and which cannot be fully explained without the assistance of a professional from Camelot Portfolios LLC.  Readers should not in any way interpret these visual aids as a device with which to ascertain investment decisions or an investment approach.  Only your professional adviser should interpret this information.
•       Some information in this presentation is gleaned from third party sources, and while believed to be reliable, is not independently verified.
•       Camelot Event-Driven Advisors, LLC, is registered as an investment adviser with the United States Securities and Exchange Commission. Registration as an investment adviser does not imply any certain degree of skill or training. Camelot Event-Driven Advisors, LLC’s disclosure document, ADV Firm Brochure is available at http://adviserinfo.sec.gov/firm/summary/291798

Copyright © 2025 Camelot Event-Driven Advisors, All rights reserved.

International Trade Policy: Game of Chicken

by Paul Hoffmeister, Portfolio Manager and Chief Economist

Since their respective highs on February 19, the S&P 500 and Nasdaq Composite have fallen -13.7% and -19.3% through Friday, April 4. Based on the MSCI All Country World Index of developed and emerging markets, over $11 trillion in market wealth has vanished. For the moment, financial markets appear to be expecting more inflation, slower growth, and less international trade. 

The equity selloff correlates with President Trump’s new tariff policies, the specifics of which began to slowly emerge in early February and the breadth and depth of which were revealed after the market close on Wednesday, April 2. The President announced a 10% baseline tariff for all exporters into the United States, and additional reciprocal tariffs on as many as 60 countries that the President believes are the worst offenders in maintaining high barriers against American exports.  
 
Of course, markets seemingly panicked last Thursday and Friday, as they discounted the economic implications as well as the possible retaliations from trading partners. China, for that matter, quickly announced 34% retaliatory tariffs on Friday morning. There are rumors that others, including the European Union, will also be instituting their own retaliatory measures. On the other hand, countries such as Taiwan and Vietnam, Indonesia and India, are pursuing constructive discussions to level trade levies and restrictions against the United States.

It remains to be seen if the White House will impose additional tariffs or punitive measures against the retaliating countries. 

The following are some notable details from Yale’s Budget Lab about the April 2nd Trump tariffs and all other tariffs imposed by the Trump Administration year-to-date. [1]

• China will have a 54% tariff (34% reciprocal tariff, plus the 20% imposed earlier this year). If one adds tariffs imposed during Trump’s first term, China tariffs will be 76%.

• Japan, South Korea and India will face tariffs of 25%.

• European imports face 20% tariffs (but 25% on vehicles).

• Average effective US tariff rate will be 22.5%; the highest since 1909. The April 2nd plan raised it 11.5 percentage points.

• Due to all tariffs imposed this year, the price level in 2025 will increase 2.3% during the short run.

• Yale’s Budget Lab forecasts US real GDP growth will decline -0.9% in 2025 due to the April 2ndtariffs and all other U.S. tariffs imposed this year. During the long run, all recent tariffs are expected to reduce US real GDP growth by -0.6% annually.

So where do equity markets go from here? During the short-term, we expect broad market indices will react positively to compromises reached with countries that reduce trade barriers, and negatively to retaliations and other aggressive reactions. 

Optimists will argue that the tariffs announced to date will be a high watermark and the starting point of negotiations that ultimately reduce barriers around the world. This would be a highly bullish scenario. Unfortunately, while we believe this will be true with certain trading partners, we don’t believe that it will be the case with all. Relations with China, for example, appear to be worsening as opposed to improving. 

During the medium term, we expect earnings expectations to be revised lower, from already lofty expectations at relatively high stock valuations. And during the longer term, a recession, long-delayed and rooted in massive post-Covid government spending, is increasingly likely.

Key variables we’re watching for will be the degree to which compromises or retaliations occur, upcoming tax reform in Congress, and changes in Fed policy. Better pro-growth tax plans or a more aggressive rate-cutting Fed would be equity market positives. 

Lost in most of the public discourse today is the question: where is pro-growth tax policy to ignite risk appetites? This is not just a question for Washington, but legislatures around the world.

We suspect financial markets will need to perform even worse to extract such surprises. 

The “Trump put” and “Fed put” are seemingly off the table, for now. 

On Sunday night, the President defended his recent trade actions: “I don’t want anything to go down, but sometimes you have to take medicine to fix something.”

As for the Fed, it typically pursues a sharp pivot to rate cuts in reaction to deflationary pressures and/or freezing credit conditions. Given that the new tariff policies are expected to be inflationary in nature, more pain in credit markets is probably necessary for the central bank to step in. 

As a result, financial markets seem to be watching a game of chicken between the United States and the rest of the world with international trade policy. But it’s arguably a game of chicken among executive and legislative policymakers globally. Eventually, countries, national legislatures, or central banks will blink. The question of course is, how much will break in the meanwhile.

------------------  

[1]  Where We Stand: The Fiscal, Economic, and Distributional Effects of All U.S. Tariffs Enacted in 2025 Through April 2 | The Budget Lab at Yale

Paul Hoffmeister is Chief Economist and Portfolio Manager at Camelot Portfolios, managing partner of Camelot Event-Driven Advisors (CEDA), and co-portfolio manager of the Camelot Event-Driven Fund (EVDIX • EVDAX).

CLICK BELOW TO REGISTER FOR
CEDA'S MONTHLY EVENT-DRIVEN CALL!

WANT MORE WAYS TO STAY UP-TO-DATE
ON ALL THE EVENT-DRIVEN NEWS?

FOLLOW US ON LINKEDIN!

VISIT OUR FRIENDS AT EVENT-DRIVEN.BLOG

Camelot Event-Driven Advisors LLC | 1700 Woodlands Drive | Maumee, OH 43537 // B643  

Disclosures:
•       Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended by the adviser), will be profitable or equal to past performance levels.
•       This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client.  These materials are not intended as any form of substitute for individualized investment advice.  The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own.  Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors.  Camelot Event Driven Advisors can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.
•       Any charts, graphs, or visual aids presented herein are intended to demonstrate concepts more fully discussed in the text of this brochure, and which cannot be fully explained without the assistance of a professional from Camelot Portfolios LLC.  Readers should not in any way interpret these visual aids as a device with which to ascertain investment decisions or an investment approach.  Only your professional adviser should interpret this information.
•       Some information in this presentation is gleaned from third party sources, and while believed to be reliable, is not independently verified.
•       Camelot Event-Driven Advisors, LLC, is registered as an investment adviser with the United States Securities and Exchange Commission. Registration as an investment adviser does not imply any certain degree of skill or training. Camelot Event-Driven Advisors, LLC’s disclosure document, ADV Firm Brochure is available at http://adviserinfo.sec.gov/firm/summary/291798

Copyright © 2025 Camelot Event-Driven Advisors, All rights reserved.

No Trump Put, For Now?

by Paul Hoffmeister, Portfolio Manager and Chief Economist

The market narrative during the last month has been consistent with the expectation we shared in our last client letter, that policy volatility will lead to market volatility. As of last Friday, the S&P 500 and Nasdaq Composite were down -6.0% and -9.3%, respectively, from their February highs as President Trump began to implement his new tariff plans, a central component of his economic plan. 

Given Trump’s unique style of public negotiation and his back and forth with other leaders, the tariff implementation has been challenging to keep track of. This itself can be difficult on financial markets, as investors love policy certainty and clarity. 

To summarize the tariff news so far: on February 1, Trump signed executive orders imposing a 25% tariff on all goods imported from Canada and Mexico, with a 10% tariff on Canadian energy products. Initially scheduled to take effect on February 4, they were delayed by a month. The Administration also imposed an additional 10% tariff on Chinese imports, which is on top of the existing 25% tariff on many Chinese goods. And on February 10, 25% tariffs on steel and aluminum imports from all countries were announced; they’re scheduled to take effect this week. And just last week, President Trump temporarily spared Canadian and Mexican automobile imports from a planned 25% tariff. Trump has also promised that he’ll announce in April more details on forthcoming reciprocal tariffs against any countries whose import duties are unequal to the United States’.

In response to a question last Thursday over whether he is creating exceptions in reaction to the market volatility, the President said, "[They have] nothing to do with the market. I'm not even looking at the market, because long-term, the United States will be very strong with what's happening." [1]

We believe this to be indeed the case because we view Trump’s tariff plans as policy rather than a mere negotiating tactic to acquire concessions without any ultimate changes in existing US tariff schedules. As such, we expect many of Trump’s desired tariffs to be eventually implemented in an effort to create more equivalent trade rules with the rest of the world. Of course, concessions from some countries are delaying implementation. For example, Canadian and Mexican efforts to increase certain border and drug anti-trafficking enforcement have won those countries temporary reprieves. 

As a result, the tariff implementation process could take many months (or even longer) which could lead to more sawtooth movements in financial markets.

The President’s comment last week that he isn’t paying attention to the stock market belies his reputation as a stock market president. It also raises an important possibility: perhaps the “Trump put” is gone from the market, at least for now. 

Last Friday, Treasury Secretary Scott Bessent followed up on that notion on CNBC. He said: “There’s no put. The Trump call on the upside is, if we have good policies, then the markets will go up.”

Bessent then alluded to the idea of a Biden-Trump economic transition: “Could we be seeing that this economy that we inherited starting to roll a bit? Sure…Look, there's going to be a natural adjustment as we move away from public spending to private spending. The market and the economy have just become hooked, and we've become addicted to this government spending. And there's going to be a detox period.”

It appears that the Trump Administration’s current economic view is that it must reduce government spending (to limit higher interest rates), rebalance trade relationships (to equalize trade levies), and extend the 2017 tax cuts (to maintain current incentives to produce). And, if the economy is already slowing and there is some friction from the Biden-Trump policy transition that aims to reduce government largesse and create “fair” trade rules, so be it. 

One could argue from the Administration’s view that any near-term economic and equity market weakness will even reinforce the case for the Fed to cut interest rates later this year, which could then set up the economy (and the Administration) favorably in 2026.

This logic seems consistent with Bessent’s comments in a Fox News interview in early February when he told Larry Kudlow: “The President wants lower rates… He and I are focused on the 10-year Treasury and what is the yield of that.” 

With stock markets at historically elevated valuations and not far from all-time highs and with the economy slowing at the margin, perhaps the Trump Administration is playing with the house’s money.  “Risk-on” investors should take note. While we don’t believe the Administration’s view is permanent, it seems -- for now -- more focused on lower Treasury yields than the general level of the stock market.

------------------
 

[1] “Trump expands exemptions from Canada and Mexico tariffs”, by Natalie Sherman and Michael Race, March 6, 2025, BBC News.

Paul Hoffmeister is Chief Economist and Portfolio Manager at Camelot Portfolios, managing partner of Camelot Event-Driven Advisors (CEDA), and co-portfolio manager of the Camelot Event-Driven Fund (EVDIX • EVDAX).

WANT MORE WAYS TO STAY UP-TO-DATE

ON ALL THE EVENT-DRIVEN NEWS?  

FOLLOW US ON LINKEDIN!

VISIT OUR FRIENDS AT EVENT-DRIVEN.BLOG

Camelot Event-Driven Advisors LLC | 1700 Woodlands Drive | Maumee, OH 43537 // B640

Disclosures:
•       Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended by the adviser), will be profitable or equal to past performance levels.
•       This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client.  These materials are not intended as any form of substitute for individualized investment advice.  The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own.  Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors.  Camelot Event Driven Advisors can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.
•       Any charts, graphs, or visual aids presented herein are intended to demonstrate concepts more fully discussed in the text of this brochure, and which cannot be fully explained without the assistance of a professional from Camelot Portfolios LLC.  Readers should not in any way interpret these visual aids as a device with which to ascertain investment decisions or an investment approach.  Only your professional adviser should interpret this information.
•       Some information in this presentation is gleaned from third party sources, and while believed to be reliable, is not independently verified.
•       Camelot Event-Driven Advisors, LLC, is registered as an investment adviser with the United States Securities and Exchange Commission. Registration as an investment adviser does not imply any certain degree of skill or training. Camelot Event-Driven Advisors, LLC’s disclosure document, ADV Firm Brochure is available at http://adviserinfo.sec.gov/firm/summary/291798

Copyright © 2025 Camelot Event-Driven Advisors, All rights reserved.